Category Archives: Property/Casualty

The Results Are In

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The Reinsurance Association of America has released the underwriting results for a group of 19 U.S. property/casualty reinsurers for the first nine months of 2009. On the whole, the numbers look pretty good: Even though the group wrote $278 million less in net premiums compared to last year ($18.7 billion versus $19.0 billion), what they wrote was more profitable. The group’s combined expense and loss ratio was 95.1% this year, down from the profit-crushing 104.2% combined ratio reported for the same period of time in 2008.

(Combined ratio essentially is how much it costs to make a buck. If your combined ratio is below 100%, you are making money on underwriting. If it is over 100% – which happens a lot with insurers – then you are losing money, mostly because your claims are outstripping your premiums.)

Ultimately, the companies that posted the largest net incomes were:

  • Swiss Reinsurance America Corporation ($582.9 million)
  • Everest Reinsurance Company ($271.0 million)
  • TRC/Putnam Reinsurance Company ($270.0 million)
  • Odyssey America Re/Odyssey Reinsurance ($219.5 million)

Conversely, the companies posting the worst negative incomes were:

  • National Indemnity Company (-$291.9 million)
  • Munich Re America Corp. (-$56.9 million)
  • American Agricultural Insurance Company (-$50.9 million)
  • QBE Reinsurance Group (-$16.8 million)

On average the entire group did rather well, posting a total net income of $1.3 billion and a total policyholder’s surplus of $74.1 billion, up $2 billion from this time last year.

These numbers shouldn’t be all that surprising, though. According to Guy Carpenter back in April, P/C reinsurers had tightened their rates during the 4/1 renewal season, with national programs rising between 10% and 14% on a risk-adjusted basis. Regional pricing also played a factor; the Northeastern U.S., for example, only saw about a 6% to 8% increase. The price jumps merely extended a rising cost of reinsurance that had already begun by January 1.

Meanwhile, the industry has also had a fairly light catastrophe year. Natural and man-made catastrophes cost insurers about $24 billion this year, compared to the $50 billion they cost last year. While Europe had an above-average year for cat losses (especially natural catastrophes), the calm hurricane season in the U.S. more than balanced things out in favor of reinsurers. This leaves the market well capitalized for whatever 2010 has in store. Hopefully it will be another quiet year, though reinsurance buyers are unlikely to endure additional price increases with a smile at the rate things are going.

The Insurance Industry and Climate Change

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This morning, AIR Worldwide, in collaboration with the the U.

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K. Met Office and the Association of British Insurers (ABI), released their findings on the financial implications of climate change to the insurance industry.

The report, “Financial Risks of Climate Change,” focuses on insured risks in both the U.K and China from dominant natural hazards in those areas, including inland flooding, winter windstorms and typhoons.

Results from the study include:

  • The average annual insured inland flood losses in Great Britain could rise by 14 percent assuming a global temperature rise of 4°C (39 degrees Fahrenheit). Within Great Britain, the results vary by region (increases range from less than 10 percent to nearly 30 percent).
  • The insured inland flood loss in Great Britain occurring on average once every 100 years could rise by 30 percent. The insured inland flood loss occurring on average once every 200 years could rise by 32 percent.
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    In both cases, the estimates assume a global temperature rise of 4°C.

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  • The average annual insured losses from typhoons affecting China could increase by 32 percent; the 100-year loss could increase by 9 percent, and the 200-year loss could increase by 17 percent. In all cases, the estimates assume a global temperature rise of 4°C.The average annual insured inland flood losses in Great Britain could rise by 14 percent assuming a global temperature rise of 4°C. Within Great Britain, the results vary by region (increases range from less than 10 percent to nearly 30 percent).

“The earth’s climate system is constantly changing,” said Dr. Peter Dailey, assistant vice president and director of atmospheric science at AIR Worldwide. “Not only does a change to any component of the system influence the risk from natural catastrophes, but the interactions between components bring about an inherent uncertainty surrounding how climate will evolve in the future. By conditioning our models on future climate scenarios developed by leading climate researchers at the Met Office, the study we have conducted on behalf of the ABI advances our understanding of the relationship between these complex climate relationships and insured risk.”

The research brings together unique climate model projections with state-of-the-art catastrophe models. And as we’ve recently seen with Typhoon Ketsana, which demolished parts of China, the Philippines, Cambodia, Vietnam and Laos and killed almost 700 and caused more than $1 billion in damage — research in this area is greatly needed. Nothing can stop Mother Nature, but cat models can help prepare for her wrath.
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Asteroids Over Manhattan

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It’s unlikely to happen — some say we’ll never see it, some say it’s inevitable and right around the corner.

Either way — if a comet does in fact hit the United States and, more specifically, Manhattan, it is expected to cause trillions in damage and 3.2 million deaths.

This is according to Risk Management Solutions, the Newark, California-based catastrophe modeling company. They based their study on the 1908 asteroid explosion that rocked Siberia.

The Tunguska Event, as it’s often referred to, occurred near the Tunguska River and knocked over an estimated 80 million trees covering 830 square miles. Several amazing eyewitness accounts of the event are listed here.

The entire RMS report is available here. I highly recommend it as it includes a history of the Tunguska event, along with probabilities of such an event happening again and an in-depth analysis of insurance implications for this type of catastrophe.

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Japan, Indian Ocean Hit By Strong Earthquakes

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Asia is, yet again, the victim of a natural catastrophe — this time in the form of two earthquakes.

A magnitude 7.6 earthquake hit the Indian Ocean in the early morning hours, prompting a tsunami watch that has now been lifted. Then, at 5:07 a.m. a magnitude 6.6 earthquake struck about 90 miles southwest of Tokyo, killing at least one and injuring close to 100. 

This comes on the heels of Typhoon Morakot, which produced deadly mudslides in China and Taiwan that have left hundreds of residents unaccounted for.

In Pengxi, a mountain-ringed town in coastal China about 270 miles southwest of Shanghai, a landslide buried six four-story apartment buildings as residents slept at 10:30 p.m. Monday, local time. Rescuers pulled four survivors and two bodies from the debris, but were unable to say how many others were missing.

As if that wasn’t enough for Asia, Japan is still reeling from the effects of Typhoon Etau, which struck the country’s west coast on Monday, killing 13 and leaving 10 others missing.

Asia is no stranger to natural catastrophes. The Insurance Information Institute lists the ten deadliest world catastrophes in 2008, with a concentration of them in Asia.

  1. May 2 Myanmar (Burma), Bay of Bengal Cyclone Nargis devastates Irrawaddy and Yangon Divisions; floods (deaths: 138,373)
  2. May 12 China Sichuan Earthquake (magnitude 7.9), aftershocks (deaths: 87,449)
  3. Jun. 19 Philippines, China, South China Sea Typhoon Fengshen/No. 6, winds up to 140 km/h, heavy rain (deaths: 1,413)
  4. Jan. 5 Afghanistan Heavy snowfall (deaths: 1,300)
  5. Jun. 10 India Floods caused by monsoon rain (deaths: 950)
  6. Sep. 1 Haiti, Turks and Caicos Island et al. Hurricane Hanna, winds up to 130 km/h, floods (deaths: 500)
  7. Nov. 28 Nigeria Clashes over disputed election results (deaths: 300)
  8. Oct. 29 Pakistan Earthquake (magnitude 6.4), aftershock (magnitude 6.2) (deaths: 300)
  9. Dec. 18 Bay of Bengal, Myanmar (Burma) Boats carrying illegal immigrants disappear (deaths: 275)
  10. Sep. 8 China Mudslide causes dam to burst at Tashan ore mine (deaths: 271)

As a 2009 SwissRe report states:

Many governments in Asia face significant financial risks when  catastrophes occur. Given the rapid development of income and wealth in Asia, the financial exposures will swiftly rise. This is likely to increase the focus on prevention and ex-post disaster management. It will also give rise to the development of insurance as a tool to cope with the financial consequences of catastrophes. It is expected therefore, that in Asia, insurance will play a more important role in the future  than it does today.

It is evident that Asia’s need for comprehensive natural catastrophe insurance is only increasing, as the continent’s population and level of wealth show no signs of slowing down.